Maria Amakali
After countless attempts to get Trustco Bank Namibia to put its house in order, the inevitable happened last week when the Bank of Namibia filed papers in the Windhoek High Court for an order to liquidate that bank.
In court documents, central bank governor Johannes !Gawaxab said Trustco Bank Namibia (TBN) has failed to comply with seven out of 25 of its directives of December 2020, including to recapitalise the institution, and improve its precarious financial position and poor liquidity risk management.
The main directive that TBN failed to comply with is the N$100 million cash injection to recapitalise the bank. The substantial amount, which was to be paid in three portions over a period of three years, was to ensure TBN’s liquidity.
The first payment of N$33.3 million was due on 31 March 2021. !Gawaxab submitted that TBN, which is a subsidiary of Trustco Group Holdings, created an illusion of having made the first payment of N$33.3 million.
He explained that the moment the money was deposited into the bank, it was immediately channelled to the parent company, Trustco Group Holdings.
“This flow of funds back to the Trustco Group defeated the purpose of the recapitalisation of Trusco Bank to ensure sufficient liquidity and capital adequacy,” added !Gawaxab. This resulted in TBN not complying with the prescribed minimum liquid asset requirement of N$13 million, or 36% of the total funding liabilities with the public.
The second payment was scheduled for 31 March, but Trustco again failed to comply. !Gawaxab further explained that through correspondences and meetings with the Trustco Group, it claimed as per BoN’s directive to have injected N$66.6 million in cash, with the payment of N$33.3 million made in
March 2021, and thereafter a monthly cash payment of N$2 million from 1 March 2021 to 30 June.
However, “the N$2 million monthly cashflow or liquid injection it referred to in the representations did not constitute capital injections because this was a payment for the core banking system, which was sold off by Trustco Bank to Trustco Shared Services,” he noted.
BoN claims that another reason it wants the court order for liquidation is due to the fact that TBN does not have a realistic and sustainable business plan.
“A banking institution needs cash to
extend loans, cover operational costs, and implement infrastructure to support the implementation of the business plan,” the BoN governor stated.
!Gawaxab said TBN’s growth projections as contained in their business plan are unexplained. TBN has projected that its core assets of N$100 million investments in Legal Shield Holdings would more than double from N$45.6 million as of May to N$108.4 million in August 2023, demonstrating an increase of N$62.8 million.
However, he countered that the projected growth is unrealistic, considering the historical performance of the institution. TBN has also allegedly made growth projections in public customer deposits. These deposits were predicted to grow by N$16.8 million within a period of one year from N$7.5 million in May to N$24.3 million in August 2023.
Trusco Bank’s debts
BoN likewise made enquiries in relation to the N$10 million loaned to TBN from the Development of Namibia (DBN). BoN found out that TBN has not made payments to honour that loan since September 2021. The central bank then enquired with the Namibia Revenue Agency (NamRA), and discovered that TBN owes the taxman N$17.4 million. This tax debt is due to the sale of an intangible asset and TBN’s employees’ pay as you earn (PAYE) tax, withholding tax, and value-added tax as of 30 June.
BoN further made an assessment on whether Trustco Group had the financial strength to support TBN.
!Gawaxab said the assessment revealed that Trustco Group made losses amounting to N$988 million, the value and volume of shares on stock exchanges were dwindling, no dividend payments were made since 2018, and the operations were not generating enough money as the net cash used in operations was N$841 000.
The assessment further revealed that the total assets exceed the total liabilities by N$2.3 billion due to the transfers and acquisitions noted in the investment property balance. It is BoN’s stance that TBN is both factually and commercially insolvent, and thus unable to pay its debts.
TBN had not yet noted their intention to oppose the application. But in September, Trustco Group issued a statement, saying “TBN maintains that it is commercially solvent at this time, and that no client of TBN will need to use the Namibia Deposit Guarantee Authority, which provides a guarantee for only N$25 000 per depositor. All TBN client deposits are 100% backed by cash, and can be returned at the client’s request.
“TBN clients are invited to contact the TBN help desk to collect their deposits should they wish to transfer their balances to any other entity. “All clients with TBN loans are advised to continue to service their loans until otherwise informed,” read the statement.
– mamakali@nepc.com.na